Double Entry Bookkeeping

Question 1

Double Entry Bookkeeping key principles

Answer 1

Double Entry Bookkeeping key principles

.The process used to record transactions

.Key principles
- Dual effect
- Separate entity concept
- Accounting equation

1) Dual effect - every transition has two financial effects e.g. you buy a van for £1000 in cash. You have a van (which is an asset). You have spent £1000 in cash, (reducing your bank balance).

2) Separate entity concept - an organisation is a separate entity from its owner (for accounting purposes). e.g. Ben starts his own organisation by putting £10,000 into an organisation bank account. The organisation owes Ben £10,000 (this is considered to be a liability - it is known as capital because the liability is to the owner of the organisation Ben). The organisation has £10,000 in its business bank account, which is an asset.

3) The accounting equation (asset - liabilities = capital).

Question 2

Examples of Double Entry Bookkeeping

Answer 2

Examples of Double Entry Bookkeeping

1) A DEBIT and CREDIT transaction). Owner puts £15,000
into the business bank account.
BANK is an ASSET. Increase in an asset = DEBIT (money
received in).
- DEBIT BANK £15,000.
The business owes the owner £15,000. Liability to the
owner is capital. An increase in capital = CREDIT.
- CREDIT CAPITAL £15,000.

2) Business paid rent. The business has incurred an
expense for rent of £500. An increase in an expense =
DEBIT.
- DEBIT RENT = £500.
- The business has spent £500 from the bank, decreasing
the bank balance. Bank is an asset, a decrease in an
asset = CREDIT (money paid out of the bank).
- CREDIT BANK £500.

3) Business has incurred an expense of goods for resale
of £1,200. Purchases are an expense. An increase in an
expense = DEBIT.
- DEBIT PURCHASES £1,200.
Business owes its supplier £1,200 (trade payable or
trade creditor). Trade payables are a liability. An
increase in a liability = CREDIT.
- CREDIT TRADE PAYABLES £1,200.

4) Business sold £5,000 of carpets on cash terms, the
funds were immediately banked.
- Business received £5,000 into the bank = DEBIT
BANK £5,000.
- Business has made sales of £5,000 = CREDIT SALES
£5,000.

5) Business sold £3,000 of carpets on credit terms to a
customer funds are due in April (trade receivables or
trade debtor).
Business owed = INCREASE IN ASSET = DEBIT
- DEBIT TRADE RECEIVABLES £3,000.
Business made sales of £3,000. Sales are income an
increase in income = CREDIT.
- CREDIT SALES = £3,000.

Question 3

DEAD & CLIC increase and decrease entries

Answer 3

DEAD & CLIC increase and decrease entries

.ASSETS - increase in ALL assets = DEBIT ENTRY. Decrease = CREDIT ENTRY.

.LIABILITIES - increase in ALL liabilities = CREDIT ENTRY.
Decrease = DEBIT ENTRY.

.EXPENSES - increase = DEBIT ENTRY. Decrease = CREDIT ENTRY.

.INCOME - increase = CREDIT ENTRY. Decrease = DEBIT ENTRY.

Question 4

DEAD

Answer 4

DEAD

DEBITS - reflect an increase in DEAD

EXPENSES
- Purchases (goods for resale)
- Electricity
- Stationary
- Discounts allowed
- Staff wages
- Rent
- Carriage inwards & outwards

ASSETS
- Bank and cash
- Trade receivables (SLCA)
- Land and buildings
- Plant and machinery

Drawings
- Cash or goods are taken out of the organisation by the
owner.

Question 5

CLIC

Answer 5

CLIC

CREDITS -REFLECT AN INCREASE IN CLIC

LIABILITIES
- Bank overdraft
- Bank loan
- Trade payables (PLCA)
- VAT liabilities

INCOME
- Sales
- Rent received
- Discounts received
- Commission received

CAPITAL
- Amounts input into the organisation by the owner.